CFAS REVIEWER

involve transfers of resources or

CHAPTER 1 obligations.
2. Internal events - events that do
ACCOUNTING - “the process of not involve an external party.
identifying, measuring and a. Production - the process by
communicating economic which resources are
information to permit informed transformed into finished
judgement and decisions by users of goods.
information.” - American Association b. Casualty - an unanticipated
of Accountants loss from disasters or other
- accounting is the art of recording, similar events.
classifying, and summarizing in a
significant manner and in terms of 2. Measuring - involves assigning
money, transactions and events numbers, normally in monetary
which are in part at least of a terms, to the economic transactions
financial character and interpreting and events.
the result thereof. - Accounting
Standard Council MEASUREMENT
1. Historical cost
THREE IMPORTANT POINTS 2. Fair value
- Accounting is about quantitative 3. Present value
information. 4. Realizable value
- The information is likely to be 5. Current cost
financial in nature. 6. Sometimes inflation-adjusted
- The information should be useful costs
in decision making. - the most commonly used is
historical cost. This is usually
THREE IMPORTANT ACTIVITIES combined with the other
1. Identifying - the process of measurement bases. Accordingly,
analyzing events and transactions to financial statements are said to be
determine whether or not they will be prepared using a mixture of costs
recognized. Only accountable events and values.
are recognized.
- recognition and nonrecognition. 3. Communicating - the process of
transforming economic data into
TYPES OF EVENTS useful accounting information, such
1. External events - events that as financial statements and other
involve an external party. accounting reports for dissemination
a. Exchange (reciprocal to users.
transfer) - reciprocal giving and
receiving. BASIC PURPOSE OF
b. Non- reciprocal transfer - ACCOUNTING
“one way” transaction. - the basic purpose of accounting is
c. External event other than to provide information about
transfer - an event that involves economic activities intended to be
changes in economic resources useful in making economic
or obligations of an entity caused decisions.
by an external property or
external source but does not
 CFAS REVIEWER
OVERALL OBJECTIVE OF  Cost-benefit - the cost of
ACCOUNTING processing and communicating
- the overall objective of accounting information should not exceed
is to provide quantitative financial the benefits to be derived from it.
information about a business useful  Accrual basis of accounting -
to statement users particularly effects of transactions are
owners and creditors in making recognized when they occur
economic decisions. (and not as cash received or
paid) and they are recognized in
TYPES OF ACCOUNTING the accounting periods to which
INFORMATION CLASSIFIED AS they relate.
TO USERS’ NEEDS  Historical cost concept - the
 General purpose accounting value of an asset is determined
information - designed to meet on the basis of acquisition cost.
the common needs of most  Concept of Articulation - all of
statement users. The information the components of a complete
is governed by the Philippine set of financial statements are
Financial Reporting Standards interrelated.
(PFRSs).  Full Disclosure Principle -
 Special purpose accounting financial statements provide
information - designed to meet sufficient detail to disclose
the specific needs of particular matters that make the
statement users. This information understandable,
information is provided by other keeping in mind the costs of
types of accounting, e.g., preparing and using it.
managerial accounting, tax basis  Consistency concept - financial
accounting, etc. statements are prepared on the
basis of accounting policies
BASIC ACCOUNTING CONCEPTS which are applied consistently
 Double-entry system - each from one period to the next.
accountable event is recorded in  Matching - costs are recognized
two parts - debit and credit. as expenses when the related
 Going Concern - the entity is revenue is recognized.
assumed to carry on its  Residual equity theory - this
operations for an indefinite theory is applicable where there
period of time. are two classes of shares
 Separate entity - the entity is issued, ordinary and preferred.
treated separately to its owners. The equation is “Assets -
 Stable monetary unit - amounts Liabilities - Preferred
in the financial statements are Shareholders Equity = Ordinary
stated in terms of a common unit Shareholders’ Equity”.
of measure; changes in  Fund Theory - the accounting
purchasing power are ignored. objective is the custody and
 Time period - the life of the administration of funds.
business is divided into series of  Realization - the process of
reporting periods. converting non-cash assets into
 Materiality concept - cash or claims for cash.
information is material if its  Prudence(Conservatism) - the
omission or misstatement could inclusion of a degree of caution
influence economic decisions. of uncertainty, such that assets
 CFAS REVIEWER
or income are not overstated involves decision making requiring
and liabilities or expenses are professional knowledge in the
not understated. science of accounting and such
position requires that the holder
COMMON BRANCHES OF thereof must be a CPA.
ACCOUNTING 3. Practice in Education/Academe
 Financial accounting - focuses - employment in an educational
on general purpose financial institution which involves teaching of
statements. accounting, auditing, management
 Management Accounting - advisory services, finance, business
focuses on special purpose law, taxation, and other technically
financial reports for use by an related subjects.
entity’s management. 4. Practice in the Government -
 Cost Accounting - the employment or appointment to a
systematic recording and position in an accounting
analysis of the costs of professional group in the
materials, labor, and overhead government or in a government-
incident to production. owned and/or controlled corporation
 Auditing - the process of where decision making requires
evaluating the correspondence professional knowledge in the
of certain assertions with science of accounting, or where civil
established criteria and service eligibility as a CPA is a
expressing an opinion thereon. prequisite.
 Tax Accounting - the
preparation of tax returns and ACCOUNTING STANDARDS IN
rendering of tax advice, such as THE PHILIPPINES
the determination of tax - Philippine Financial Reporting
consequences of certain Standards (PFRSs) are Standards
proposed business endeavors. and Interpretations adopted by the
 Government Accounting - Financial Reporting Standards
refers to the accounting for Council (FRSC). They comprise;
government and its 1. Philippine Financial Reporting
instrumentalities, placing Standards (PFRSs);
emphasis on the custody of 2. Philippine Accounting
public funds, the purposes for Standards(PASs); and
which those funds are 3. Interpretations
committed, and the responsibility
and accountability of the THE NEED FOR REPORTING
individuals entrusted with those STANDARDS
funds. - Entities should follow a uniform set
of generally acceptable reporting
FOUR SECTORS IN THE standards when preparing and
PRACTICE OF ACCOUNTANCY presenting financial statements;
1. Practice of Public Accountancy otherwise, financial statements
- involves the rendering of audit or would be misleading.
accounting related services to more - The term “generally acceptable”
than one client on a fee basis. means that either:
2. Practice in Commerce and a. The standard has been
Industry - refers to employment in established by an
the private sector in a position which
 CFAS REVIEWER
authoritative accounting rule- SCOPE OF THE CONCEPTUAL
making body; or FRAMEWORK
b. The principle has gained 1. The objective of financial
general acceptance due to reporting
practice over time and has 2. Qualitative characteristics of
been proven to be most useful information
useful. 3. Financial statements and the
- The process of establishing reporting entity
financial accounting standards is a 4. The elements of financial
democratic process in that majority statements
of practicing accountants must agree 5. Recognition and
with a standard before it becomes derecognition
implemented. 6. Measurement
7. Presentation and disclosure
CHAPTER 2 8. Concepts of capital and
capital maintenance
CONCEPTUAL FRAMEWORK - for
financial reporting is a complete, OBJECTIVE OF GENERAL
comprehensive, and single PURPOSE FINANCIAL
document promulgated by the REPORTING
International Accounting Standards - The objective of general purpose
Board (IASB). financial reporting is to provide
- The Conceptual Framework is not financial information about the
a PFRS. When there is a conflict reporting entity that is useful to
between the Conceptual Framework primary users in making decisions
and a PFRS, the PFRS will prevail. about providing resources to the
- In the absence of the standard, entity.
management shall consider the - It also forms the foundation of the
Conceptual Framework in making its Conceptual Framework.
judgement in developing and
applying an accounting policy that Primary Users - are those who can
results in useful information. not demand information directly from
reporting entities. The primary users
PURPOSE OF THE CONCEPTUAL are;
FRAMEWORK a. Existing and potential
A. Assist the International investors
Accounting standards Board (IASB) b. Lenders and other creditors
in developing Standards that are - only the common needs of
based on consistent concepts; primary users are met by the
B. Assist preparers in developing financial statements.
consistent accounting policies when
no Standard applies to a particular QUALITATIVE
transactions or when a Standard CHARACTERISTICS
allows a choice of accounting policy; I. Fundamental qualitative
and characteristics
C. Assist all parties in understanding 1) Relevance - information is
and interpreting the Standards. relevant if it can affect the
decisions of users.
 CFAS REVIEWER
a. Predictive value - the a. Reasonable knowledge
information can be used of business activities;
in making predictions. and
b. Feedback value b. Willingness to analyze
/Confirmatory Value - the information diligently.
the information can be
used in confirming past FUNDAMENTAL VS ENHANCING
predictions. - The fundamental qualitative
 Materiality - is an ‘entity- characteristics are the
specific’ aspect of relevance. characteristics that make information
useful to users.
2) Faithful Representation - - The enhancing qualitative
means the information characteristics are the
provides a true, correct and characteristics that enhance the
complete depiction of what it usefulness of information.
purports to represent.
a. Completeness - all FINANCIAL STATEMENT AND
information necessary THE REPORTING ENTITY
for users to understand
the phenomenon being Objective and scope of financial
depicted is provided. statements
b. Neutrality - information - the objective of general purpose of
is selected or presented financial statements is to provide
without bias. financial information about the
c. Free from error - there reporting entity’s assets, liabilities,
are no errors in the equity, income and expenses that is
description and in the useful in assessing:
process by which the a. The entity’s ability to
information is selected generate future cash inflows;
and applied. and
b. Management’s stewardship
II. Enhancing qualitative over economic resources.
characteristics
1. Comparability - the Reporting Period
information helps users in - financial statements are prepared
identifying similarities and for a specific period of time (I.e., the
differences between different reporting period) and include
sets of information. comparative information for at
2. Verifiability - different users least one preceding reporting period.
could reach consensus as to
what the information Going Concern
purports to represent. - financial statements are normally
3. Timeliness - the information prepared on the assumption that the
is available to users in time reporting entity is a going concern,
to be able to influence their meaning the entity has neither the
decisions. information nor the need to end its
4. Understandability - users operations in the foreseeable future.
are expected to have;
 CFAS REVIEWER
Reporting Entity obligation or constructive
- a reporting entity is one that is obligation.
required, or chooses, to prepare 2. Transfer of an economic
financial statements, and is not resource - the obligation
necessarily a legal entity. It can be a has the potential to require
single entity or a group or the transfer of an economic
combination of two or more entities. resource to another party.
Such potential need not be
ELEMENTS OF FINANCIAL certain or even likely- what is
STATEMENTS important is that the
obligation already exists and
Asset - is “a present economic that, in at least one
resource controlled by the entity as a circumstance, it would
result of past events. An economic require the transfer of an
resource is a right that has a economic resource.
potential to produce economic 3. Present obligation as a
benefits.” result of past events - a
1. Right - asset refers to a present obligation exists as a
right, and not necessarily to result of past events if;
a physical object, eg., the a. The entity has already
right to use, sell, lease, or obtained economic
transfer a building. benefits or taken an
2. Potential to produce action; and
economic benefits - the b. As a consequence, the
right has a potential to entity will or may have to
produce economic benefits transfer economic
for the entity that are beyond resource that would not
the benefits available to all otherwise have had to
others. Such potential need transfer.
not be certain or even likely
- what is important is that the Equity - “equity is the residual
right already exists and that, interest in the assets of the entity
in at least one circumstance, after deducting all its liabilities.”
it would produce economic - Equity = Assets - Liabilities
benefits for the entity.
3. Control - means the entity Income - income is “increases in
has the exclusive right over assets, or decreases in liabilities,
the benefits of an asset and that a result in increases in equity,
the liability to prevent others other than those relating to
from accessing those contributions from holders of equity
benefits. claims.”

Liability - is “a present obligation of Expenses - expenses are

the entity to transfer an economic “decreases in assets, or increases in
resource as a result of past events.” liabilities, that result in decreases in
1. Obligation - an obligation is equity, other than those relating to
“a duty or responsibility that distributions to holders of equity
an entity has no practical claims.”
ability to avoid.” An
obligation can be either legal
 CFAS REVIEWER
RECOGNITION AND MEASUREMENT BASES
DERECOGNITION 1. Historical cost - of;
a. An asset is the
The recognition process consideration paid to acquire
- recognition is the process of the asset plus transaction
including in the statement of costs.
financial position or the statement(s) b. A liability is the
of financial performance an item that consideration received to
meets the definition of one of the incur the liability minus
financial statement transaction costs.
elements( I.e.,asset, liability, equity, - Historical cost is updated over time
income or expense). This involves to depict the following:
recording the item in words and in  Depreciation,
monetary amount and including that amortization, or
amount in the totals of either of impairment of assets
those statements.  Collections or payments
- An item is recognized if: that extinguish part of all
a. It meets the definition of an of the asset or liability is
asset, liability, equity, measured at amortized
income, and expense; and cost
b. Recognizing it would provide  Unwinding of discount or
useful information, i.e., premium when the asset
relevant and faithfully or liability is measured at
represented information. amortized cost.
Relevance
- the recognition of an item may not 2. Current value
provide relevant information if, for a. Fair value - is “the price that
example: would be received to sell an
a. It is uncertain whether an asset, or paid to transfer a
asset or liability exists; or liability, in an orderly
b. An asset or liability exists, transaction between market
but the probability of an participants at the
inflow or outflow of economic measurement date.”
benefits is low. b. Value in use and
However, the presence fulfillment value - value in
of one or both of the foregoing does use is “the present value of
not automatically lead to the non- the cash flows, or other
recognition of an item. Other factors economic benefits, that an
should also be considered. entity expects to derive from
the use of an asset and from
Derecognition - is the removal of a its ultimate disposal.”
previously recognized asset or - Fulfillment value is “the
liability from the entity’s statement of present value of the cash, or
financial position. other economic resources, that
- derecognition occurs when the item an entity expects to be obliged to
ceases to meet the definition of an transfer as it fulfills a liability.”
asset or liability. c. Current cost - of;
a) an asset is “the cost of
an equivalent asset at
the measurement date,
 CFAS REVIEWER
comprising the - Physical concept of capital -
consideration that would capital is regarded as the entity’s
be paid at the productive capacity, e.g., units of
measurement date plus output per day.
the transaction costs that
would be incurred at that PAS 1 - FINANCIAL STATEMENTS
date.”
b) A liability is “the OBJECTIVE OF PAS 1
consideration that would - PAS 1 prescribes the basis for
be received for an presentation of general purpose
equivalent liability at the financial statements to improve
measurement date comparability both with the entity’s
minus the transaction financial statements of previous
costs that would be periods(intra-comparability) and with
incurred at that date.” the financial statements of other
entities(inter-comparability).
PRESENTATION AND
DISCLOSURE General purpose financial
- Information is communicated statements - are those intended to
through presentation and disclosure serve users who do not have the
in the financial statements. authority to demand financial reports
- Effective communication makes tailored for their own needs. General
information more useful. Effective purpose financial statements cater to
communication requires: most of the common needs of a wide
a. Focusing on presentation range of external users.
and disclosure objectives
and principles rather than on GENERAL FEATURES
rules. 1. Fair presentation and Compliance
b. Classifying information by with PFRSs - The application of
grouping similar items and PRFSs, with additional disclosure
separating dissimilar items. when necessary, is presumed to
c. Aggregating information in a result in financial statements that
manner that it is not achieve fair presentation.
obscured either by 2. Going Concern - a entity is not a
excessive detail or by going concern if, as of the financial
excessive summarization. reporting date or prior to the date of
Aggregation - is “the adding authorization of the financial
together of assets, liabilities, equity, statements for issue, management
income or expenses that have either;
shared characteristics and are a. Intends to liquidate the entity
included in the same classification.” or to cease trading, or
b. Has no realistic alternative
CONCEPTS OF CAPITAL AND but to do so.
CAPITAL MAINTENANCE - The assessment of going concern
- Financial concept of capital - is at least 12 months.
capital is regarded as the invested 3. Accrual basis of accounting - an
money or invested purchasing entity shall prepare its financial
power. Capital is synonymous with statements except for cash flow
equity, net assets, and net worth. information, using the accrual basis
of accounting.
 CFAS REVIEWER
4. Materiality & Aggregation - each STATEMENT OF FINANCIAL
material class of similar items must POSITION
be presented separately in the - A statement of financial position
financial statements. may be presented as either
5. Offsetting - Assets and liabilities, 1. Classified - showing
and income and expenses, shall not distinctions between current
be offset unless required or and noncurrent assets and
permitted by a PFRS. liabilities, or
6. Frequency of reporting - An entity 2. Unclassified (based on
shall present a complete set of liquidity) - showing no
financial statements (including distinction between current
comparative information) at least and noncurrent items.
annually.
- when an entity changes the end of Current Assets
its reporting period and presents - an entity shall classify an asset as
financial statements for a period a current when:
longer or shorter than one year, an 1. It expects to realize the
entity shall disclose the following; asset or intends to sell or
1) The period covered by the consume it, in its normal
financial statements, operating cycle;
2) The reason for using a 2. It holds the asset primarily
longer or shorter period, and for the purpose of trading;
3) The fact that amounts 3. It expects to realize the
presented in the financial asset within 12 months after
statements are not entirely the reporting period; or
comparable. 4. The asset is cash or a cash
7. Comparative Information - an equivalent unless the asset
entity shall present comparative is restricted from being
information in respect of the exchanged or used to settle
preceding period for all amounts a liability for at least 12
reported in the current period’s months after the reporting
financial statements, unless other period.
standards permit or require
otherwise. Current Liabilities
8. Consistency of presentation - an - an entity shall classify a liability as
entity shall retain the presentation current when:
and classification of items in the 1. It expects to settle the
financial statements from one period liability in its normal
to the next unless: operating cycle;
a. It is apparent that another 2. It holds the liability primarily
presentation or classification for the purpose of trading;
would be more appropriate 3. The liability is due to be
following a significant settled within 12 months
change in the nature of the after the reporting period; or
entity’s operations or a 4. The entity does not have an
review of its financial unconditional right to defer
statements; or settlement of the liability for
b. A PFRS requires a change at least 12 months after the
in presentation. reporting period.
 CFAS REVIEWER
Currently Maturing Long-Term D. Financial Assets (excluding
Liabilities amounts shown under (e),
General rule - currently maturing (h) and (I))
long term liabilities are E. Investments accounted for
presented as current liabilities. using the equity method
F. Biological Assets
Exceptions G. Inventories
1. Refinancing agreement is H. Trade and other receivables
fully completed on or before I. Cash and cash equivalents
the balance sheet date - J. Assets (or disposal groups)
non-current liability classified as held for sale in
2. Refinancing agreement after accordance with PFRS 5;
the balance sheet date but K. Trade and other payables
before the financial L. Provisions
statements are authorized M. Financial liabilities(excluding
for issue - noncurent liability amount shown in (k) and (l);
if the entity expects, and has N. Liabilities and assets for
the discretion, to refinance current tax, as defined in
it in a long-term basis under PAS 12 Income taxes
an existing loan facility. O. Deferred tax liabilities and
deferred tax assets, as
BREACH OF LOAN AGREEMENT defined in PAS 12
General rule: A liability that is P. Liabilities included in
payable on demand is a current disposal groups classified
liability. held for sale in accordance
with PFRS
Exception: It is presented as non- Q. Non-controlling interests,
current liability if the lender provides presented within equity
the entity, on or before the balance R. Issued capital and reserves
sheet date, a grace period ending at attributable to owners of the
least 12 months after the balance parent
sheet date to rectify a breach of loan
covenant. STATEMENT OF PROFIT OR
LOSS AND OTHER
PRESENTATION OF DEFERRED COMPREHENSIVE INCOME
TAXES - An entity shall present all
- Deferred tax liabilities (assets) are items of income and expense
presented as noncurrent items in a recognized in a period:
classified statement of financial 1. In a single statement of
position, irrespective of their profit or loss and other
expected dates of reversal. comprehensive
income;or
MINIMUM LINE ITEMS IN THE 2. In two statements: (1) a
STATEMENT OF FINANCIAL statement displaying the
POSITION profit or loss section only
A. PPE (separate ‘statement of
B. Investment Property profit or loss’ or ‘income
C. Intangible Assets statement’) and (2) a
second statement
beginning with profit or
 CFAS REVIEWER
loss and displaying PRESENTATION OF EXPENSES
components of other 1. Nature of expense method
comprehensive income. 2. Function of expense method

OTHER COMPREHENSIVE - If an entity classifies expenses by

INCOME FOR THE PERIOD function, it shall disclose
A. Changes in revaluation additional information on the
surplus nature of expenses
B. Unrealized gains and losses
on investments in FVOCI STATEMENT OF CHANGES IN
securities EQUITY
C. Remeasurements of the net It shows the following information;
defined benefit liability A. Effects of change in
(asset) accounting policy
D. Gains and losses arising (retrospective application) or
from translating the financial correction of prior period
statements of a foreign error (retrospective
operation restatement)
E. Effective portion gains and B. Total comprehensive income
losses on hedging for period; and
instruments in a cash flow C. For each component of
hedge equity, a reconciliation
between the carrying amount
- OCI may be presented either (a) at the beginning and the end
net of tax or (b) gross of tax. of the period showing
separately changes resulting
RECLASSIFICATION from:
ADJUSTMENTS a. P/L
- Reclassification adjustments are b. OCI
amounts reclassified to profit or loss c. Transaction with owners
in the current period that were
recognized in other comprehensive PAS 2 - INVENTORIES
income in the current or previous
periods. Inventories are assets;
a. Held for sale in the ordinary
TOTAL COMPREHENSIVE course of business (Finished
INCOME Goods);
- Total comprehensive income b. In the process of production
comprises all components of for such sale (Work in
1. Profit or loss; and process); or
2. Other comprehensive c. In the form of materials or
income. supplies to be consumed in
the production process or in
“The change in equity during a the rendering of services
period resulting from transactions (raw materials and
and other events, other than those manufacturing supplies)
changes resulting from transactions
with owners in their capacity as FINANCIAL STATEMENT
owners” PRESENTATION
 CFAS REVIEWER
- All items that meet the definition of capitalized as cost of
inventory are presented on the inventory, but the storage
statement of financial position as costs of completed finished
one line item under the caption goods are expensed).
“Inventories”. The breakdown of this
line item (as finished goods, WIP COST FORMULAS
and raw materials) is disclosed in the 1. Specific identification -
notes. shall be used for inventoried
- Inventories are normally presented that are not ordinarily
in a classified statement of financial interchangeable (I.e., used
position as current assets for inventories that are
unique). Cost of sales is the
MEASUREMENT cost of the specific inventory
- Inventories are measured at the that was sold.
lower of cost and net realizable 2. FIFO - cost of sales is based
value (LCNRV). on the cost of inventories
- The cost of inventories comprise that were purchased first.
all costs of purchase, costs of Consequently, ending
conversion and other costs inventory represents the cost
incurred in bringing the inventories to of the latest purchases.
their present location and condition. 3. Weighted Average Cost -
- Net realizable value (NRV) is the cost of sales is based on the
estimated selling price in the average cost of all
ordinary course of business less the inventories purchased during
estimated costs of completion and the period.
the necessary to make the sale.  Wtd.Ave.Cost = (TGAS
Formula: Estimated selling price - in pesos / TGAS in
Estimated costs of completion - units)
estimate cost to sell
WRITEDOWN OF INVENTORIES
COSTS THAT ARE EXPENSED - Inventories are usually written
WHEN INCURRED down to net realizable value on an
1. Abnormal amounts of item by item basis.
wasted materials, labor or - If the cost of an inventory exceeds
other production costs. its NRV, the inventory is written
2. Selling costs, for example, down to NRV, the lower amount. The
advertising, and promotion excess of cost over NRV represents
costs and delivery expense the amount of write-down.
or freight out.
3. Administrative overheads REVERSAL OF WRITE-DOWNS
that do not contribute to - the amount of reversal to be
bringing inventories to their recognized should not exceed the
present location and amount of the original write-down
condition. previously recognized.
4. Storage costs, unless the
costs are necessary in the RECOGNITION AS AN EXPENSE
production process before a - The carrying amount of an
further production stage, inventory that is sold is charged as
(e.g., the storage costs of expense (I.e., cost of sales) in the
partly finished goods may be period in which the related revenue
 CFAS REVIEWER
is recognized. Likewise, the write- 2. Investing activities include
down of inventories to NRV and all transactions that affect long-
losses of inventories are recognized term assets and other non-
as expense in the period the write- operating assets.
down or loss occurs.
Examples of cash flows from
PAS 7 - STATEMENT OF CASH investing activities
FLOWS a. Cash receipts and cash
payments in the
ACTIVITIES acquisition and disposal
1. Operating activities include of PPE, investment
transactions that enter into property, intangible
the determination of profit or assets and other
loss. These transactions noncurrent assets
normally affect income b. Cash receipts and cash
statement accounts. payments in the
acquisition and sale of
Examples of cash flows from equity or debt
operating activities instruments of other
a. Cash receipts from the entities (other than those
sale of goods, rendering that are classified as
services, or other forms cash equivalents or held
of income for trading)
b. Cash payments for c. Cash receipts and cash
purchases of goods and payments on derivative
services assets and liabilities
c. Cash payments for (other than those that
operating expenses, are held for trading or
such as employee classified as financing
benefits, insurance, and activities)
the like, and payments d. Loans to other parties
or refunds of income and collections thereof
taxes (other than loans made
d. Cash receipts and by a financial institution)
payments from contracts
held for dealing and or 3. Financing activities include
trading purposes transactions that affect
equity and non-operating
Reporting cash flows from liabilities.
operating activities
1. Direct method - shows each Examples of cash flows from
major class of gross cash receipts financing activities
and gross cash payments. a. Cash receipts from
2. Indirect method - adjusts accrual issuing shares or other
basis profit or loss for the effects of equity instruments and
changes in operating assets and cash payments to
liabilities and effects of non- cash redeem them
items. b. Cash receipts from
issuing notes, loans,
bonds, and mortgage
 CFAS REVIEWER
payable and other short- 1. Changes from FIFO cost
term or long-term formula to the Average cost
borrowings, and their formula
repayments 2. Change in the method of
c. Cash payments by a recognizing revenue from
lessee for the reduction long-term construction
of the outstanding contracts.
liability relating to a 3. Change to a new policy
lease. resulting from the
requirement of a new PFRS.
PAS 8 - ACCOUNTING POLICIES, 4. Changes in financial
CHANGES IN ACCOUNTING reporting framework, such as
ESTIMATES AND ERRORS PFRS for SMEs to full
PFRSs.
Accounting policies are “the 5. Initial adoption of the
specific principles, bases, revaluation model for PPE
conventions, rules and practices and intangible asset.
applied by an entity in preparing and 6. Change from the cost model
presenting financial statements.” to the fair value model of
measuring investment
PFRSs property.
- Philippine Financial Reporting 7. Changes in business model
Standards (PFRSs) are Standards for classifying financial
and Interpretations adopted by the assets resulting to
Financial Reporting Standard reclassification between
Council (FRSC). They comprise the financial asset categories.
following;
1. Philippine Financial reporting Changes in accounting estimate -
Standards (PFRSs); changes in the realization (or
2. Philippine Accounting incurrence) of expected inflow (or
Standards (PASs); and outflow) of economic benefits from
3. Interpretations assets (or liabilities).
Accounting treatment
Changes in accounting policy - - Prospective application
change in measuring basis.
Effect in judgement
Accounting Treatment - In profit or loss of current period
a. Transitional provision or current and future periods if the
b. Retrospective application change affects both.
c. If (b) is impracticable,
prospective application. Examples of changes in
accounting estimate
Effect on adjustment 1. Changes in depreciation or
- On the beginning balance of the amortization methods.
retained earnings; if accounted for 2. Change in estimated useful
retrospectively. lives of depreciable assets.
3. Change in estimated
Examples of changes in residual values of
accounting policies depreciable assets.
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4. Change in required PAS 10 - EVENTS AFTER THE
allowances for impairment REPORTING PERIOD
losses and uncollectible
accounts. Effects after the reporting period
5. Changes in fair values cost are “those events favorable or
to sell of non-current assets unfavorable, that occur between the
held for sale and biological end of the reporting period and the
assets. date that the financial statements are
authorized for issue”.
Correction of prior period error -
intentional and unintentional TWO TYPES OF EVENTS AFTER
misapplication of principles, THE REPORTING PERIOD
misinterpretation of facts and 1. Adjusting events after the
mathematical mistakes. reporting period - are those
that provide evidence of
Accounting treatment conditions that existed at
a. Retrospective restatement the end of the reporting
b. If (b) is impracticable, period.
prospective application
Examples of adjusting events
Effect on adjustment I. The settlement after the
- on the beginning balance of reporting period of a court
retained earnings, if accounted for case that confirms that the
retrospectively. entity has a present
obligation at the end of
Errors reporting period.
- Errors include the effects of: II. The receipt of information
1. Mathematical mistakes after the reporting period
2. Mistakes in applying indicating that an asset was
accounting policies impaired at the end of
3. Oversights or reporting period.
misinterpretations of facts; III. The determination after the
and reporting period of the cost
4. Fraud of asset purchased, or the
proceeds from asset sold,
- when it is difficult to distinguish a before the end of reporting
change in accounting policy from a period.
change in accounting estimate, the IV. The discovery of fraud or
change is treated as a change in errors that indicate that the
accounting estimate. financial statements are
incorrect.
An entity shall change an accounting
policy if the change: 2. Non-adjusting events after
1. Is required by a PFRS; or the reporting period - those
2. Results to a more relevant that are indicative of
and reliable information conditions that arose after
about an entity’s financial the reporting period.
position, performance, and
cash flows. Examples of non-adjusting events
normally requiring disclosures
 CFAS REVIEWER
I. Changes in fair value, - Other term; taxable income
foreign exchange rates,,
interest rates or market
prices after the reporting PERMANENT DIFFERENCES
period. - Permanent differences are those
II. Casualty losses (e.g., fire, that do not have future tax
storm, or earthquake) consequences.
occurring after the reporting Examples:
period but before the a. Interest income on
financial statements were government bonds and
authorized for issue. treasury bills
III. Litigation arising solely from b. Interest income on bank
events occurring after the deposits
reporting period. c. Dividend income
IV. Major ordinary share d. Fines, surcharges, and
transactions and potential penalties arising from
ordinary share transactions violation of law
after the reporting period. e. Life insurance premium on
V. Major business combination employees where the entity
after the reporting period. is the irrevocable beneficiary
VI. Announcing a plan to
discontinue an operation TEMPORARY DIFFERENCES
after the reporting period. - Temporary differences are those
VII. Declaration of dividends that have future tax consequences.
after the reporting period. Temporary differences are either:
a. Taxable temporary
DATE OF AUTHORIZATION OF differences - arise, for
THE FINANCIAL STATEMENTS example, when financial
- this date is the date when income is greater than
management authorizes the taxable income or the
financial statements for issue carrying amount of an asset
regardless of whether such is greater than its tax base.
authorization for issue is for further b. Deductible temporary
approval or for final issuance to differences result to
users. deferred tax liabilities while
deductible temporary
PAS 12 - INCOME TAXES differences result to
deferred tax assets.
Accounting Profit or Loss
- Computed using PFRSs DEFERRED TAXES
- Total income less total expenses, - If the increase in deferred tax
excluding tax expense liability exceeds the increase in
- Other terms; pretax income, deferred tax asset, the difference is
financial income, and accounting deferred tax expense. If it’s the
income opposite, the difference is deferred
tax income or benefit.
Taxable Profit (Tax Loss) - A deferred tax asset is recognized
- Computed using tax laws only to the extent that it is realizable.
- Taxable income less tax- - Deferred taxes are measured using
deductable expenses enacted or substantially enacted tax
 CFAS REVIEWER
rates that are applicable to the
periods of their expected reversals.
- Deferred tax assets and liabilities INITIAL MEASUREMENT
are not discounted. - An item of PPE is initially measured
- Deferred tax assets and liabilities at its cost
are presented as non-current.
Elements of cost
PAS 16 - PROPERTY, PLANT, 1. Purchase price, including
AND EQUIPMENT non-refundable purchase
taxes, after deducting trade
CHARACTERISTICS OF PPE discounts and rebates.
a. Tangible assets - items of 2. Costs directly attributable to
PPE have physical bringing the asset to the
substance. location and condition
b. Used in normal operations - necessary for it to be
items of PPE are used in the capable of operating in the
production or supply of manner intended by the
goods or services, for rental, management.
or for administrative 3. Present value of
purposes decommissioning and
c. Long-term in nature - items restoration costs to the
of PPE are expected to be extent that they are
used from more than a year. recognized as obligation.

EXAMPLES OF ITEMS OF PPE EXAMPLES OF DIRECTLY

a. Land used in business ATTRIBUTABLE COSTS
b. Land held for future plant - Costs of employee benefits arising
site directly from the construction or
c. Building used in business acquisition of PPE;
d. Equipment used in - Cost of site preparation;
production of goods - Initial delivery and handling costs
e. Equipment held for (e.g., freight costs);
environmental and safety - Installation and assembly costs;
reasons - Testing costs, net of disposal
f. Equipment held for rental proceeds of samples generated
g. Major spare parts of long- during testing; and
lived stand-by equipment - Professional fees
h. Furniture and fixtures
i. Bearer plants CESSATION OF CAPITALIZING
COSTS TO PPE
RECOGNITION - Recognition of costs in the
- The cost of an item of PPE shall be carrying amount of an item of PPE
recognized as an asset only if: ceases when the item is in the
a. It is probable that future location and condition necessary for
economic benefits it to be capable of operating in the
associated with the item will manner intended by management.
flow to the entity; and
b. The cost of the item can be MEASUREMENT OF COST
measured reliably. - The cost of an item of PPE is the
cash price equivalent at the
 CFAS REVIEWER
recognition date. If payment is - Depreciation begins when the
deferred beyond normal credit asset is available for use, when it is
terms, the difference between the in the location and condition
cash price equivalent and the total necessary for it to be capable of
payment is recognized as interest operating in the manner intended by
over the period of credit unless such management.
interest is capitalized in accordance - Depreciation ceases when the
with PAS 23 Borrowing costs. asset is derecognized or when it is
classified as “held for sale” under
ACQUISITION THROUGH PFRS 5, whichever comes earlier.
EXCHANGE
- If the exchange has commercial SELECTION OF DEPRECIATION
substance, the asset received from METHOD
the exchange is measured using the - There are various methods of
following order of priority; depreciation. The entity shall select
a. Fair value of asset given up the method that most closely
b. Fair value of asset received reflects the expected pattern of
c. Carrying amount of asset consumption of the future
given up economic benefits embodied in
- If the exchange lacks commercial the asset.
substance, the asset received from - However, a depreciation method
the exchange is measured at (c) that is based on revenue that is
above. generated by an activity that
includes the use of an asset is not
SUBSEQUENT MEASUREMENT appropriate.
- Subsequent to initial recognition,
an entity shall choose either; THE STRAIGHT-LINE METHOD OF
a. The cost model or DEPRECIATION
b. The revaluation model Straight line method - depreciation is
As its accounting policy and shall recognize evenly over the life of the
apply that policy to an entire class asset by dividing the depreciable
of PPE. amount by the estimated useful life.

COST MODEL Depreciation = (Historical cost -

- After recognition, an item of PPE is residual value) / Estimated useful
measured at its cost less any life
accumulated depreciation and any
accumulated impairment losses. CHANGES IN DEPRECIATION
METHOD, USEFUL LIFE AND
DEPRECIATION RESIDUAL VALUE
- Depreciation is the systematic - A change in depreciation method,
allocation of the depreciable useful life, or residual value is a
amount of an asset over its change in accounting estimate for
estimated useful life. prospectively.
- When computing for depreciation, - Prospective accounting means the
each part of an item of PPE with a change affects only the current
cost that is significant in relation to period and/or future period. The
the total cost of the item shall be change does not affect past periods.
depreciated separately.
REVALUATION MODEL
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- After recognition as an asset, an - Subsequently, the revaluation
item of PPE whose fair value can be surplus is accounted as follows:
measured reliably shall be carried at 1. If the revalued asset is non-
revalued amount, being its fair depreciable, the revaluation
value at the date of the revaluation surplus accumulated in
less any subsequent accumulated equity is transferred
depreciation and subsequent directly to retained
accumulated impairment losses. earnings when the asset is
derecognized.
REVALUATION SURPLUS 2. If the revalued asset is
Fair value xx depreciable, a portion of
Less: Carrying amount the revaluation surplus may
(xx) be transferred periodically to
Revaluation surplus - gross of tax xx retained earnings as the
asset is being used.
*The fair value is determined using
an appropriate valuation technique, DERECOGNITION
taking into account the principles set - The carrying amount of an item or
forth under PFRS 13. PPE shall be derecognized:
a. On disposal; or
FREQUENCY OF REVALUATION b. When no future economic
- For items with significant and benefits are expected from
volatile changes in the fair value, its use or disposal.
annual revaluation is necessary.
For items with insignificant changes PAS 19 - EMPLOYEE BENEFITS
in fair value, revaluation may be
made every 3 or 5 years. Employee benefits - are “all forms
of consideration given by an entity in
REVALUATION APPLIED TO ALL exchange for service rendered by
ASSETS IN A CLASS employees.”
- If an item of PPE is revalued, the
entire class of PPE to which asset FOUR CATEGORIES OF
belongs shall be revalued. EMPLOYEE BENEFITS UNDER
- The items within a class of PPE PAS 19
are revalued simultaneously to 1. Short-term employee
avoid selective revaluation of assets benefits - are employee
and the reporting of amounts in the benefits (other than
financial statements that are a termination benefits) that are
mixture of costs and values as at due to be settled within 12
different dates. months after the end of the
period in which the
SUBSEQUENT ACCOUNTING FOR employees render the
REVALUATION SURPLUS related service.
- Revaluation is initially recognized 1) Salaries, wages, and
in other comprehensive income SSS, PhilHealth and
unless the revaluation represents Pag-IBIG contributiions
impairment loss or reversal of 2) Paid vacation leaves and
impairment loss, in which case it is sick leaves
recognized in profit or loss. 3) Profit-sharing and
bonuses
 CFAS REVIEWER
4) Non-monetary - Non-accumulating compensated
benefits(e.g., free foods absences are those that are not
and services) carried forward. No liability or
expense is recognized until the
Recognition and Measurement absences occur, because employee
When an employee has service does not increase the
rendered service to an entity during amount of the benefit.
an accounting period, the entity shall
recognize the undiscounted amount 2. Post-employment benefits
of short-term employee benefits - are employee benefits
expected to be paid in exchange for (other than termination
that service: benefits) that are payable
1) As a liability (accrued after the completion of
expense), after deducting employment. Post-
any amount already paid. employment benefit plans
2) As an asset (prepaid are classified as either:
expense) if the amount paid 1) Defined contribution
in excess of the plans - the employer
undiscounted amount of the commits to contribute to
benefits incurred;provided, a fund which will be used
prepayment will lead to a to pay for the retirement
reduction in future payments benefits of the
or a cash refund; and employees.
3) As an expense, unless the
employee benefit form part ACCOUNTING FOR DEFINED
of the cost of an asset, e.g., CONTRIBUTION PLANS
as part of the cost of - the accounting defined for
inventories or property, plant contribution plans is straightforward
and equipment. because the reporting entity’s
obligation for each period is
SHORT-TERM COMPENSATED determined by the amounts to be
ABSENCES contributed for that period.
- Accumulating compensated Consequently, no actual
absences are those that are carried assumptions are required to
forward and can be used in future measure the obligation or the
period if the current period’s expense and there is no possibility of
entitlement is not used in full. any gain or loss.
Accumulating compensated
absences may either be 2) Defined benefit plans -
1. Vesting - wherein the employer commits to
employees are entitled to a pay retiring employees a
cash payment for unused definite amount.
entitlement on leaving the
entity; or ACCOUNTING FOR DEFINED
2. Non-vesting - wherein BENEFIT PLAN
employees are not entitled to - the accounting for defined benefit
a cash payment for unused plan is complex because actuarial
entitlement on leaving the assumptions are required to
entity. measure the obligation and the
 CFAS REVIEWER
expense and there is a possibility of benefit obligation and the
actuarial gains and losses. settlement price.
- Obligations are measured on a 4. Interest cost on the
discounted basis. defined benefit obligation -
is the increase during a
ACCOUNTING PROCEDURES period in the present value of
FOR DEFINED BENEFIT PLANS a defined benefit obligation
I. Determine the deficit or which arises because the
surplus benefits are one period
closer to settlement.
(Deficit) Surplus = FVPA - PV 5. Actuarial gains and losses
of DBO - are changes in the present
value of the defined benefit
II. Determine the Net defined obligation which arises
benefit liability (asset) because the benefits are one
 If there is a deficit, the deficit period closer to settlement.
is the Net defined benefit
liability. ACTUARIAL ASSUMPTIONS
 If there is a surplus, the Net - Actuarial assumptions are an
defined benefit asset is the entity’s best estimates of the
lower of the surplus and the variables that will determine the
asset ceiling. ultimate cost of providing post-
III. Determine the defined employment benefits.
benefit cost 1. Demographic assumptions
(BASTA NASA BOOK ANG about the future
HIRAP ITYPE E PAGOD NA characteristics of employees
EMS TwT) who are eligible for benefits.
Demographic assumptions
The asset ceiling is the present deal with matter such as:
value of any economic benefits a. Morality, both during and
available in the form of refunds from after employment
the plan or reductions in the future b. Rates of employee
contributions to the plan. turnover, disability and
early retirement
DEFINITION OF TERMS c. The proportion of plan
1. Current service cost - is members with
the increase in the present dependents who will be
value of a defined benefit eligible for benefits
obligation resulting from d. Claim rates under
employee service in the medical plans
current period. 2. Financial assumptions,
2. Past service cost - is the dealing with items such as:
change in the present value a. The discount rate
of the defined benefit b. Future salary and benefit
obligation resulting from a levels
plan amendment or c. Future medical costs, if
curtailment. any, including cost of
3. Gain or loss on settlement administering claims and
- the difference between the payments
present value of the defined
 CFAS REVIEWER
d. The expected rate of employment before the
return on plan assets normal retirement date;
or
3. Other long-term employee 2. An employee’s decision
benefits - are employee to accept an entity’s offer
benefits (other than post- of benefits in exchange
employment benefits and for the termination of
termination benefits) that are employment.
due to be settled beyond 12
months after the end of the MEASUREMENT
period in which the - termination benefits are initially
employees render the and subsequently recognized in
related service. accordance with the nature of the
- other long-term employee employee benefit.
benefits are accounted for using a. If the termination benefits
the procedures applicable for a are payable within 12
defined benefit plan. However, months, the entity shall
all of the components of the net account for the termination
benefit cost are recognized in benefits similarly with short-
profit or loss. term employee benefits
b. If the termination benefits
Examples are payable beyond 12
1. Long term compensated months, the entity shall
absences, e.g., account for the termination
sabbatical leave benefits similarly with other
2. Jubilee or other long- long-term benefits
service benefits c. If the termination benefits
3. Long-term disability are, in substance,
benefits enhancement to post-
4. Profit-sharing and employment benefits, the
bonuses payable beyond entity shall account for the
12 months after the end benefits as post-employment
of the period in which the benefits.
employees have
rendered the related PAS 20 - GOVERNMENT GRANTS
service.
5. Deferred compensation Government grants are assistance
payable beyond 12 received from the government in the
months after the end of form of transfers of resources in
the period in which it is exchange for compliance with
earned. certain conditions.
- Government grants exclude
4. Termination benefits - are government assistance whose value
employee benefits provided cannot be reasonably measured or
in exchange for the cannot be distinguished from the
termination of an employee’s entity’s normal trading transactions.
employment as a result of
either: EXAMPLES OF GOVERNMENT
1. An entity’s decision to GRANTS
terminate an employee’s
 CFAS REVIEWER
a. Receipt of cash, land, or - Monetary grants are measured at
other non-cash assets from the
the government subject to a. Amount of cash received; or
compliance with certain b. The fair value of amount
conditions. receivable; or
b. Receipt of financial aid in c. Carrying amount of loan payable
case of loss from a calamity to government for which
c. Forgiveness of an existing repayment is forgiven; or
loan from the government. d. Discount on loan payable to
d. Benefit of a government loan government at a below-market
with below-market rate of rate of interest.
interest
- Non-monetary grants (e.g., land
The following are not government and other resources) are measured
grants; at the
a. Tax benefits; a. Fair value of non-monetary
b. Free technical or marketing asset received.
advice; b. Alternatively, at nominal
c. Provision of guarantees; amount or zero, plus direct
d. Government procurement costs incurred in preparing
policy that is responsible for the asset for its intended
a portion of the entity’s use.
sales, and
e. Public improvements that ACCOUNTING FOR GOV’T.
benefit the entire community. GRANTS
- The main concept in accounting
RECOGNITION for government grant is recognized
- Government grants are recognized as income as the entity recognizes
if there is reasonable assurance that: as expense the related cost for
a. The attached conditions will which the grant is intended to
be complied with; and compensate.
b. The grants will be received
PRESENTATION OF
CLASSIFICATION OF GOVERNMENT GRANTS
GOVERNMENT GRANTS RELATED TO ASSETS
ACCORDING TO ATTACHED - Government grants related to
CONDITION assets are presented in the
a. Grants related to assets - statement of financial position either
grants whose primary by:
condition is that an entity a. Gross presentation - the
qualifying for them should grant is presented as
purchase, construct, or deferred income (liability);
otherwise acquire long-term b. Net presentation - the grant
assets. is deducted when computing
b. Grants related to income - for the carrying amount of
grants other than those the asset.
related to assets.
PRESENTATION OF
INITIAL MEASUREMENT GOVERNMENT GRANTS
RELATED TO income
 CFAS REVIEWER
- Government grants related to foreign currency shall be
income are sometimes presented in translated using the
the income statement either by: exchange rates at the date
a. Gross presentation - the when the fair value was
grant is presented determined.
separately or under a
general heading such as MONETARY ITEMS
“Other income”, or Monetary items - are units of
b. Net presentation - the grant currency held an assets and
is deducted in reporting the liabilities to be received or paid in a
related expense fixed or determinable number of
units of currency.
REPAYMENT OF GOVERNMENT 2. Foreign operations -
GRANTS groups often include
- A government grant that becomes overseas entities.
repayable is accounted for as a
change in accounting estimate that TWO MAIN ACCOUNTING ISSUES
is treated prospectively under PAS - Exchange rates are constantly
8. changing. Therefore, the principal
issues in accounting for foreign
PAS 21 - THE EFFECTS OF activities are determining:
CHANGES IN FOREIGN 1. Which exchange rate(s) to
EXCHANGE RATES use; and
2. How to report the effects of
TWO WAYS OF CONDUCTING changes in the financial
FOREIGN ACTIVITIES statements.
1. Foreign currency
transactions - individual FUNCTIONAL CURRENCY
entities often enter into - When preparing financial
transactions in a foreign statements, a reporting entity must
currency. identify its functional currency.
- Functional currency is the
Initial recognition: currency of the primary economic
- The foreign currency amount is environment in which the entity
translated at the spot exchange operates.
rate at the date if the transaction. - The primary economic
environment in which an entity
Subsequent recognition: At the end operates inn normally the one in
of each reporting period: which it primarily generates and
1. Foreign currency monetary expends cash.
items are re-translated
using the closing rate; FACTORS IN DETERMINING
2. Non-monetary items that are FUNCTIONAL CURRENCY
measured at historical cost Primary factors
in a foreign currency shall be An entity’s financial currency is:
translated using the 1. The currency that mainly
exchange rate at the date influences:
of the transaction; and  Sale prices
3. Non-monetary items that are  Cost of goods sold / cost
measured at fair value in a of services provided
 CFAS REVIEWER
manufactured, or otherwise
Secondary factors produced, over a short
2. The currency in which funds period of time.
from financing activities b. Assets that are ready for
are generated. their intended use or sale
3. The currency in which when acquired are not
receipts from operating qualifying assets.
activities are usually c. Assets that are routinely
retained. manufactured or otherwise
produced in large quantities
PAS 23 - BORROWING COST on a repetitive basis.
d. Assets measured at fair
Borrowing costs are interest and value.
other costs incurred by an entity in
connection with the borrowing of COMMENCEMENT OF
funds. Borrowing costs may include: CAPITALIZATION
1. Interest expense on financial - The capitalization of borrowing
liabilities or lease liabilities costs as part of the cost of a
computed using the effective qualifying asset commences on the
interest method. date when all of the following
2. Exchange differences arising conditions are met:
from foreign currency a. The entity incurs
borrowings to the extent that expenditures for the asset;
they are regarded as an b. The entity incurs borrowing
adjustment to interest costs. costs; and
“Borrowing costs that are directly c. It undertakes activities that
attributable to the acquisition, are necessary to prepare the
construction or production of a asset for its intended use or
qualifying asset form part of the sale.
cost of that asset. Other borrowing
costs are recognized as an SUSPENSION OF
expense.” CAPITALIZATION
- Capitalization of borrowing costs
Qualifying asset is an asset that shall be suspended during
necessary takes a substantial extended periods of suspension of
period of time to get ready for its active development of a qualifying
intended use or sale. Depending on asset.
the circumstances, any of the
following may be qualifying assets: CESSATION OF CAPITALIZATION
a. Inventories - An entity shall cease capitalizing
b. Manufacturing plants borrowing costs when substantially
c. Power generation facilities all the activities necessary to
d. Intangible assets prepare the qualifying asset for its
e. Investment properties intended use or sale are complete.
measured under cost model
DETERMINING BORROWING
The following are not qualifying COSTS ELIGIBLE FOR
assets CAPITALIZATION
a. Financial assets, and
inventories that are
 CFAS REVIEWER
I. Qualifying assets financed - Necessary disclosures, therefore,
through Specific borrowing should be provided to draw users’
attention to the possible effects of
Interest expense on specific such relationships and transactions
borrowing xx on the financial statements
Less: Investment income earned on presented.
specific borrowing xx
Borrowing cost eligible for A related party is “a person or entity
capitalization xx that is related to the reporting entity
that is preparing its financial
II. Qualifying assets financed statements.”
through General borrowing
Total interest expense on general Examples of related parties:
borrowings xx 1. Investor and investee
Divide by: Total general borrowings relationship where control,
xx joint control or significant
Capitalization rate % influence exists.
2. Key management personnel
3. Close family member
Average expenditure on the asset 4. Post-employment benefit
Xx plan
Multiply by: Capitalization rate %
Borrowing cost that may be eligible DEFINITION OF TERMS
for capitalization xx Control - an investor controls an
investee when the investor is
The amount computed in the formula exposed, or has rights, to variable
above shall be compared with the returns from its involvement with the
actual borrowing costs incurred investee and has the ability to affect
during the period. The amount to be those returns through its power over
capitalized is the lower amount. the investee

FINANCIAL STATEMENT Significant influence is the power

PRESENTATION to participate in the financial and
- Qualifying assets are not operating policy decisions of an
segregated from other assets in the entity, but is not control over those
financial statements. They are policies. Significant influence may be
presented as regular assets under gained by share ownership, statue or
their normal classification as agreement.
provided under other standards.
Joint control is the contractually
PAS 24 - RELATED PARTY agreed sharing of control over an
DISCLOSURES economic activity.
- The financial position and profit
and loss of an entity may be affected Key management personnel are
by a related party relationship even those persons having authority and
if related party transactions do not responsibility for planning, directing
occur. The mere existence of the and controlling the activities of the
relationship may be sufficient to entity, directly or indirectly, including
affect the transactions of the entity any director (whether executive or
with other parties. otherwise) of that entity.
 CFAS REVIEWER
SPOTS and loans to key
Close members of the family of an management personnel.
individual 3. Related party transactions -
a. The individual’s domestic nature of transaction and
partner and children; outstanding balances
b. Children of the individual’s
domestic partner; - Disclosures that related party
c. Dependents of the individual transactions were made on terms
or the individual’s domestic equivalent to those that prevail in
partner. arm’s length transactions are made
only if such terms can be
A related party transaction is a substantiated.
transfer of resources, services or
obligations between a reporting PAS 26 - ACCOUNTING AND
entity and a related party, regardless REPORTING BY RETIREMENT
of whether a price is charged. BENEFIT PLANS

UNRELATED PARTIES FINANCIAL STATEMENTS OF A

1. Two entities simply because DEFINED CONTRIBUTION PLAN
they have a director in - a statement of net assets
common. available for benefits;
2. Two ventures simply - a statement of changes in net
because they share joint assets available for benefits; and
control over joint venture. - Accompanying notes to the
3. Providers of finance, trade financial statements
unions, public utilities, and
departments and agencies PAS 27 - SEPARATE FINANCIAL
of a government that does STATEMENTS
not control, jointly control or
significantly influence the - Separate financial statements are
reporting entity, simply by those presented in addition
virtue of their normal consolidated financial statements or
dealings with an entity. in addition to financial statements in
4. A customer, supplier, which investments in associates or
franchisor, distributor or joint ventures are accounted for
general agent with whom an using the equity method. Separate
entity transacts a significant financial statements need not be
volume of business, simply appended to, or accompany, those
by virtue of the resulting statements.
economic dependence. - PAS 27 does not mandate which
entities should produce separate
DISCLOSURE financial statements.
1. Parent-subsidiary - an entity shall apply PAS 27 in
relationship regardless of accounting for investments in
whether there have been subsidiaries, joint ventures and
transactions between them associates when it elects, or is
2. Key management personnel required by local regulations, to
compensation broken down present separate financial
into the following categories statements.
 CFAS REVIEWER
PREPARATION OF SEPARATE governing body of the
FINANCIAL STATEMENTS investee;
Separate financial statements shall b. Participation in policy-
be prepared in accordance with all making processes, including
applicable PFRSs except as follows: participation in decisions
- Investments in subsidiaries, about dividends or other
associates and joint ventures are distributions;
accounted for in the separate c. Material transactions
financial statements either; between the investor and the
1. At cost investee;
2. In accordance with PFRS 9 d. Interchange of managerial
Financial instruments, personnel; or
3. Using the equity method e. Provision of essential
technical information.
- The entity shall apply the same
accounting for each category of EQUITY METHOD
investment - Investments in associates or joint
ventures are accounted for using the
PAS 28 - INVESTMENT IN equity method. Under this method,
ASSOCIATE the investment is initially recognized
at cost and subsequently adjusted
Associate - an entity, including an for the investor’s share in the
unincorporated entity such as a changes in EQUITY of the
partnership, over which the investor investee.
has significant influence.
Share in associates
Significant influence - the power to A. Profit or loss
participate in the financial and B. Dividends
operating policy decisions of the C. Other comprehensive income
investee but is not control or joint
control over those policies. Effects on investment is associate
- Significant influence is presumed A. Increase for share in profit/
to exist if the investor holds, directly decrease for share in loss.
or indirectly (e.g., through B. Decrease
subsidiaries) 20% or more of the C. Increase for share in
voting power of the investee, gain/decrease for share in loss.
unless it can be clearly
demonstrated that this is not the Effect on investment income
case. A. Increase for share in profit;
decrease for share in loss
EVIDENCE OF EXISTENCE OF B. No effect
SIGNIFICANT INFLUENCE BY AN C. No effect; the share in OCI is
INVESTOR included in the investor’s OCI
The following may provide evidence
of significant influence even if the PREFERENCE SHARES ISSUED
percentage of ownership interest is BY AN ASSOCIATE
less that 20%. If an associate has outstanding
a. Representation on the board preference shares that are held by
of directors or equivalent parties other than the investor, the
investor computes its share of profits
 CFAS REVIEWER
or losses after making the following - Increase of ownership above 50%
adjustments.
Preference share is cumulative Accounting treatment
- Deduct one-year dividend, whether - Financial asset at fair value under
declared or not before computing PFRS 9
share in associate’s profit or loss. - Investment in subsidiary under
PFRS 3 and PFRS 10
Preference share is
noncumulative RECLASSIFICATION OF
Deduct dividends only when CUMULATIVE OCI
declared before computing share in - If an investor loses significant
associate;s profit or loss. influence over an associate, all
amounts recognized in other
Preference share is redeemable comprehensive income in relation to
- No dividend is deducted when the associate shall be accounted on
computing share in associate;s profit the same basis as would be
or loss. required if the associate had directly
disposed of the related assets or
DISCONTINUANCE OF THE USE liabilities.
OF EQUITY METHOD
- An investor starts to apply the SHARE IN LOSSES OF
equity method on the date it obtains ASSOCIATE
significant influence and ceases to If an investor’s share of losses of an
apply the equity method in the date it associate equals or exceeds its
loses significant influence. interest in the associate, the
- On the loss of significant influence, investor discontinues recognizing
the investor shall measures at fair its share of further losses.
value any investment the investor
retains in the former associate. The Interest in the associate includes the
investor shall recognize in profit or following:
loss any difference between: 1. Investment in associate
1. The fair value of any measured under equity method.
retained investment and any 2. Investment in preference shares
proceeds from disposing of of the associate
the part interest in the 3. Unsecured long-term
associate; and receivables or loans
2. The carrying amount of the
investment at the date when Interest in the associate does not
significant influence is lost. include the following:
1. Trade receivables and payables
CLASSIFICATION OF RETAINED 2. Secured long-term receivables
INTEREST or loans
Following the discontinuance
method, the retained interest shall After the investor’s interest in the
be classified as follows; associate is reduced to zero,
additional losses are provided for;
Loss on significant influence due and liability is recognized, only to
to the extent that the investor has
- Decrease of ownership interest incurred
below 20%
 CFAS REVIEWER
a. Legal or constructive obligations is deemed to arise. This is a matter
or of judgment.
b. Made payments on behalf of the
associate. INDICATORS OF
- Any other losses are not HYPERINFLATION
recognized. 1. The general population
prefers to keep its wealth in
- If the associate subsequently non-monetary assets or in a
reports profits, the investor resumes relatively stable foreign
recognizing its share of those profits currency. Amounts of local
only after its share of the profits currency held are
equals the share of losses not immediately invested to
recognized. maintain purchase power;
2. The general population
PAS 29 - FINANCIAL REPORTING regards monetary amounts
IN HYPERINFLATIONARY not in terms of the local
ECONOMICS currency but in terms of a
relatively stable foreign
THE STABLE MONETARY currency. Prices may be
ASSUMPTION quoted in that currency;
- Under the stable monetary 3. Sales and purchases on
assumption, the purchasing power credit take place at prices
of money is assumed to be stable. that compensate for the
Therefore, inflation is ignored. expected loss of purchasing
power during the credit
- The exception to this concept is period, even if the period is
hyperinflation. short;
4. Interest rates, wages and
PRICE LEVEL CHANGES prices are linked to a price
- General price level changes and index; and
the purchasing power of money have 5. The cumulative inflation rate
an inverse relationship. over three years is
 If the general price level approaching, or exceeds
increases, this means that 100%.
the purchasing power of
money has decreased - a CORE PRINCIPLE
condition known as  The financial statements of an
inflation. entity whose functional currency
 If the general price level is the currency of a
decreases, this means that hyperinflationary economy shall
the purchasing power of be stated in terms of the
money has increased - a measuring unit current at the
condition known as end of the reporting period.
deflation.  The comparative information for
the previous period shall also be
HYPERINFLATION stated in terms of the
- Hyperinflation occurs when measuring unit current at the
inflation is “very high”. end of the reporting period.
- PAS 29 does not establish an  Presentation of information as a
absolute rate at which hyperinflation supplement to understated
 CFAS REVIEWER
financial statements is not 3. Refundable deposits, e.g.,
permitted. security deposits on leases
 Separate presentation of the to be returned to tenants at
financial statements before the end of the lease term
restatement is discouraged. and deposits for returnable
RESTATEMENT OF FINANCIAL containers.
STATEMENTS 4. Dividends payable
Statement of financial position
- Only non-monetary items, - All other items that cannot be
statement of financial position classified as monetary items are
amounts not already expressed in non-monetary items, except of
terms of the measuring unit current “retained earnings.” Retained
at the end of the reporting period, earnings is the a balancing figure
are restated when using the after res
constant peso accounting.
NON-MONETARY ITEMS
- Monetary items are not restated CARRIED AT OTHER THAN COST
because they are already expressed - As a general guide, only non-
in terms of the monetary unit current monetary measured at cost are
at the end of the reporting period. restated. The following non-
monetary items need not be
- Monetary items are money held restated.
and items to be received or paid in 1. Non-monetary items
fixed or determinable amount of measured at net realizable
money without reference to future value (NRV) or fair value as
prices of specific goods or services. at the end of the reporting
Monetary items include monetary period.
assets and monetary liabilities. 2. Non-monetary items
measured at revalued
EXAMPLES OF MONETARY amounts as at the end of the
ASSETS reporting period.
1. Cash and cash equivalents
2. Loans and receivables and - If the NRV, fair value or revalued
their related allowances amount is determined at a date other
3. Financial assets at than the end of reporting period, the
amortized cost (debt nonmonetary item is nevertheless
instruments) restated.
4. Finance lease receivables
5. Cash surrender value RESTATEMENT OF FINANCIAL
STATEMENTS
EXAMPLES OF MONETARY - All items in the statement of profit
LIABILITIES or loss and other comprehensive
1. Financial liabilities at income are restated.
amortized cost ( debt
instruments), e.g., accounts, FORMULA FOR RESTATEMENT
notes, bonds, and finance
lease payables. Historical cost x Current price index
2. Accrued expenses payable Historical price index
in fixed and determinable
amounts of money.
 CFAS REVIEWER
When it is impracticable to determine not classified as the entity’s
the historical price indicates, such as own equity instrument.
for transactions recurring very
frequently, the average general The following are not financial
price index for the period may be assets:
used. a. Physical assets, such as
inventories, biological
GAIN OR LOSS ON NET assets, PPE and investment
MONETARY POSITION property
b. Intangible assets
Net monetary items (monetary c. Prepaid expenses and
assets less monetary liabilities), end. advances to suppliers
- Historical xx d. The entity’s own equity
Less: Net monetary items, end. - instrument (e.g., treasury
restated xx shares)
Gain (loss) on net monetary
position xx FINANCIAL LIABILITIES
Financial liability - is any liability that
The gain or loss on the net monetary is:
a. A contractual obligation to
position (also called ‘purchasing
deliver cash or another
power gain or loss’) is recognized financial asset to another
entity;
in profit or loss.
b. A contractual obligation to
exchange financial assets or
PAS 32 - FINANCIAL financial liabilities with
INSTRUMENTS: PRESENTATION another entity under
conditions that are
Financial instrument - is “any potentially unfavorable to the
contract that gives rise to a financial entity; or
asset of one entity and a financial c. A contract that will or may be
stability or equity instrument of settled in the entity’s own
another entity.” equity instruments and is not
classified as the entity’s own
FINANCIAL ASSETS equity instrument.
Financial asset - is any asset that is:
1. Cash; Examples of financial liabilities
2. An equity instrument of a) Payables such as accounts,
another entity; notes, loans, and bonds
3. A contractual right to receive payable.
cash or other financial asset b) Lease liabilities
from another entity; c) Held for trading liabilities
4. A contractual right ti d) Redeemable preference
exchange financial shares issued.
instruments with another e) Security deposits and other
entity under conditions that returnable deposits
are potentially favorable; or The following are not financial
5. A contract that will or may be liabilities:
settled in the entity’s own a) Unearned revenues and
equity instruments and is warranty obligations that are
 CFAS REVIEWER
to be settled by future
delivery of goods or
provision of services.
b) Taxes, SSS, Philhealth, and Callable preference shares
Pag-IBIG payables - are preferred stocks which the
c) Constructive obligations issuer has the right to call at a set
date.
PRESENTATION - are classified as equity
Financial liability instrument because the right to call
- the entity has a contractual is at the discretion of the issuer and
obligation to pay cash or therefore has no obligation to pay
another financial asset or to unless it chooses to call on the
exchange financial instruments shares.
under potentially unfavorable
condition. COMPOUND FINANCIAL
- the contract requires the INSTRUMENTS
delivery of (a) a variable - A compound financial instrument is
number of the entity’s own a financial instrument that, from the
equity instruments in exchange issuer’s perspective, contains both a
for a fixed amount of cash or liability and an equity component.
another financial asset or (b) a These components are classified
fixed number of the entity’s own and accounted for separately, as
equity instruments in exchange follows:
for a variable amount of cash or a. The value assigned to the
another financial asset. liability component is its
fair value without the equity
Equity instrument feature
- the entity has no obligation to b. The value assigned to the
pay cash or another financial equity component is the
asset or to exchange financial residual amount after
instruments under potentially deducting the value
unfavorable condition. assigned to the liability
- the contract requires the component from the fair
delivery (receipt) of a fixed value of the compound
number of the entity’s own interest.
equity instruments in exchange
for a fixed amount of cash or TREASURY SHARES
another financial asset. - Treasury shares are an entity’s
own shares that were previously
REDEEMABLE VS CALLABLE issued but were subsequently
PREFERENCE SHARES reacquired but not retired.
Redeemable preference shares - Treasury shares are treated as
- are preferred stocks which the deduction from equity.
holder has the right ti redeem at a - Treasury share transactions are
set date. recognized directly in equity.
- are classified as financial liability Therefore, they do not result to
because when the holder exercises gains or losses.
its right to redeem, issuer is
mandatorily obligated to pay for OFFSETTING OF FINANCIAL
the redemption price. ASSETS & FINANCIAL LIABILITIES
 CFAS REVIEWER
- A financial asset and financial profit or loss whether
liability are offset and only the net declared or not.
amount is presented in the b. If the preference shares are
statement of financial position when non-cumulative, only the
the entity has both: dividend declared is
a. A legal right of setoff and deducted from profit or loss.
b. An intention to settle the
amounts on a net basis or WEIGHTED AVERAGE NUMBER
simultaneously OF OUTSTANDING ORDINARY
SHARES
PAS 33 - EARNINGS PER SHARE - Shares are usually time-weighted
from the date consideration is
Earnings per share (EPS) - is a receivable (which is generally the
computation made for ordinary date of their issue). Thus:
shares. It is a form of profitability a. Shares issued outright are
ratio which represents how much averaged from the issuance
was earned by each ordinary share date.
during the period. No EPS is b. Subscribed shares are
presented for preference shares averaged from the
because these shares have fixed subscription date.
return represented by their dividend c. Treasury shares are
rates. averaged
i. As reduction to the
TYPES OF EARNINGS PER number of outstanding
SHARE shares from the
reacquisition date; or
1. Basic earnings per share ii. As addition to the
BASIC EPS = P/L - Preferred dvds number of outstanding
W/A#of Ordinary S. shares from the
2. Diluted earnings per share reissuance date.

CONSIDERATIONS IN RESTATEMENT OF EPS

COMPUTING PROFIT OR LOSS - EPS in previous periods are
a. Profit or loss should be net adjusted retrospectively when an
of income tax expense entity issues any of the following:
b. Profit or loss should be a. A capitalization or bonus
adjusted for the after-tax issue (e.g., share dividend);
amounts of preference b. A bonus element in any
dividends, differences order issue, for example a
arising on the settlement of bonus element in a rights
preference shares, and other issue to existing
similar effects on preference shareholders (also referred
shares classified as equity. to as preemptive stock
rights);
ADJUSTMENTS FOR c. A share split (increase in
PREFERENCE DIVIDENDS number of shares with
a. If preference shares are corresponding decrease in
cumulative, one-year par value); and
dividend is deducted from d. A reverse share split
(consolidation of shares or
 CFAS REVIEWER
decrease in number of outstanding ordinary shares +
shares with corresponding incremental shares arising from the
increase in par value). assumed conversion of exercise of
dilutive potential ordinary shares
RIGHT ISSUE OPTIONS, WARRANTS AND
THEIR EQUIVALENTS
Adjustment factor = Fair value of - When computing for diluted
stocks immediately before the earnings per share, the “treasury
exercise of rights / Theoretical ex- share method” shall be used in
rights fair value per share computing for the incremental
shares. This method assumes that:
DILUTED EARNINGS PER SHARE 1. The options or warrants are
- Diluted earnings per share is the exercised and
amount of profit for the period per 2. The proceeds received from
share, reflecting the maximum the exercise are used to
dilutions that would have resulted purchase treasury shares at
from conversations, exercises, and the average market price.
other contingent issuances that 3. The difference between the
individually would have decreased treasury shares assumed to
earnings per share and in the have been purchased and
aggregate would have had a dilutive the option shares represents
effect. the incremental shares.
- Only basic earnings per share is
presented if an entity has no dilutive TREASURY SHARE METHOD
potential ordinary shares (I.e.,simple
capital structure). Option shares xx
Multiply by: Total exercise price xx
- the computation diluted earnings Proceeds from assumed exercise of
per share is based on the options xx
assumption that the dilutive Divide by: Average market price xx
potential ordinary shares were Treasury shares assumed to have
converted or exercised. It is : been purchased XX
a. “As if” the convertible
preference shares or Total exercise price is computed as
convertible bonds have been follows:
converted; or Exercise price xx
b. “As if” the options or Fair value of each share option xx
warrants have been Total exercise price xx
exercised.
FINANCIAL STATEMENT
- the conversion or exercise is PRESENTATION
assumed to have taken place on - Basic and Diluted earnings per
the date the potential ordinary share are computed on the following:
shares become outstanding, 1. Profit or loss from continuing
regardless of the date of actual operations
conversion or exercise. 2. Profit or loss from discontinued
operations, if the entity reports a
Diluted EPS = Profit or loss + after discontinued operation.
tax interest expense on convertible 3. Profit or loss for the year
bonds / weighted average number of
 CFAS REVIEWER
- EPS is not computed on the other or (b) a condensed separate
comprehensive income and total income statement and a
comprehensive income condensed statement of
- EPS computed on profit or loss comprehensive income;
from continuing operations and profit 3. Condensed statement of
or loss for the year are presented on changes in equity
the face of the statement of profit or 4. Condensed statement of
loss and other comprehensive cash flows
income. If the entity uses two- 5. Selected explanatory notes
statement presentation, EPS is
presented only on the separate The term “condensed” means an
income statement. entity needs only to provide the
minimum information required
PAS 34 - INTERIM FINANCIAL under PAS 34.
REPORTING
However, an entity is not
Interim reporting pertains to the prohibited from publishing a
preparation and presentation of complete set of financial
interim financial report for an interim statements accordance to PAS 1
period. in its interim financial report.

Interim period is a financial ADDITIONAL CONCEPTS

reporting period shorter that a full Relevance over reliability - in
financial year: the interest of timeliness and
cost considerations, less
Interim financial report means a information may be provided at
financial report containing either: interim dates.
a. A complete set of financial
statements (PAS 1); OR Materiality and estimates - an
b. A set of condensed financial entity may rely on estimates to a
statements (PAS 34) greater extent when preparing
For an interim period. interim financial reports.

CONTENT OF AN INTERIM Note disclosures - only

FINANCIAL REPORT selected explanatory notes are
- An entity presenting an interim provided in interim financial
financial report has the option of reports to avoid repetition.
complying either with PAS 1
(complete set of FS) or PAS 34 BUSINESS IS HIGHLY
(condensed set of FS) SEASONAL
- If an entity ‘s business is highly
MINIMUM CONTENT OF AN seasonal, PAS 34 encourages
INTERIM FINANCIAL REPORT disclosure of financial
UNDER PAS 34 information for the latest 12
1. Condensed statement of months and comparative
financial position; information for the prior 12-
2. Condensed statement of month period in addition to the
profit or loss and OCI, interim period financial
presented as either (a) a statements.
condensed single statement;
 CFAS REVIEWER
of an asset. It is the higher of an
RECOGNITION AND asset’s:
MEASUREMENT a. Fair value less costs of
- Gains and losses arising in an disposal, and
interim period are recognized b. Value in use
immediately and are not deferred,
e.g., inventory write-downs & Value in use is the present value of
reversals; asset impairment losses & the future cash flows expected to be
reversals; discontinued operations; derived from an asset or cash-
and fair value changes on assets generating unit.
measured at fair value.
IDENTIFYING AN ASSET THAT
- Costs and expenses (income) that MAY BE IMPAIRED
benefit the entire year or are
incurred (earned) over the year are An entity shall assess at the end of
spread out over the interim periods, each reporting period whether there
e.g., depreciation, amortization; is any indication that an asset may
property taxes; insurance expense be impaired. If any such indication
(income) ; 13th months pay and other exists, the entity shall estimate the
year-end bonuses. recoverable amount of the asset.

- Discretionary income are If there is no indication that an

recognized immediately in the period asset may be impaired, an entity is
the income is earned, e.g., dividend not required to estimate the
income. recoverable amount of the asset.

- Income tax expense in the interim INDICATIONS OF IMPAIRMENT

periods is computed using the best I. External sources of
estimate of the weighted average information
annual income tax rate expected a. Significant decline in the
for the full financial year; asset’s value more than
what is expected as a result
PAS 36 - IMPAIRMENT OF of passage of time of normal
ASSETS use.
b. Significant changes in
If the carrying amount of an asset is technological, market,
greater than its recoverable economic or legal
amount, the asset is impaired. The environment in which the
excess is impairment loss. entity operates or in the
market to which an asset is
COMPUTATION OF IMPAIRMENT dedicated.
LOSS c. Increase in market interest
Recoverable amount xx rates or other market rates of
Less: Carrying amount return on investments which
(xx) are likely to affect discount
Impairment loss xx rates used in calculating
asset’s recoverable amount
Recoverable amount is the amount materially.
to be recovered through use or sale
 CFAS REVIEWER
d. Carrying amount of the net - Value in use is the present value of
assets is more than its the future cash flows expected to be
market capitalization. derived from an asset or cash-
II. Internal sources of generating unit.
information  Any residual value of the
a. Evidence of obsolescence of asset and disposal costs
physical damage should be included in
b. Significant change with estimating future cash
adverse effect to the entity inflows and outflows.
has taken place or will take  Cash flow projections shall
place which will affect cover a maximum period of
expected use of asset. E.g., 5 years.
discontinuance, disposal,  Projections beyond 5 years
reconstructing plans. are extrapolated.
c. Evidence is available from  The discount rate to be used
internal reporting that shall be a pre-tax rate.
indicates that the economic
performance of an asset is, RECOGNIZING AND MEASURING
or will be, worse than AN IMPAIRMENT LOSS
expected. - Impairment loss is recognized in
profit or loss, unless the asset is
REQUIRED TESTING FOR carried at revalued amount, in which
IMPAIRMENT case revaluation surplus is
The following are required to be decreased first and any excess is
tested for impairment at least recognized in profit or loss. The
annually, whether or not there are decrease in the revaluation surplus
indications for impairment: is recognized in other
a. Intangible asset with comprehensive income.
indefinite useful life.
b. Intangible asset not yet DEPRECIATION OF IMPAIRMENT
available for use. - After the recognition of an
c. Goodwill acquired in a impairment loss, the depreciation
business combination. (amortization) charge for the asset
shall be adjusted in future periods to
MEASURING RECOVERABLE allocate the asset’s revised
AMOUNT carrying amount, less its residual
- Recoverable amount is the higher value (if any), on a systematic basis
of the asset’s fair value less costs of over its remaining useful life.
disposal and value in use.
- However, if there is no reason to CASH GENERATING UNIT (CGU)
believe that an asset’s value in use - Cash generating unit (CGU) is the
materially exceeds its fair value less smallest identifiable group of assets
costs of disposal, the asset’s fair that generates cash inflows that are
value less costs of disposal may be largely independent of the cash
used as its recoverable amount. This inflows from the other assets or
will often be the case for an asset groups of assets.
that is held for disposal.
IMPAIRMENT OF INDIVIDUAL
VALUE IN USE ASSETS INCLUDED IN A CGU
 CFAS REVIEWER
- Assets whose recoverable amount Legal obligation is an obligation
can be determined reliably are that derives from:
tested for impairment individually. a. Legislation; or
- Assets whose receivable amount b. Other operation of law
cannot be determined reliably (e.g.,
assets that do not generate their Constructive obligation is an
own cash flows) are included in a obligation that derives from an
CGU.The CGU us the one tested for entity’s actions;
impairment. a. By an established pattern of
past practice, published
ALLOCATING GOODWILL TO policies or a sufficiently
CGU’S specific current statement,
- For purposes of impairment testing, the entity has indicated to
goodwill acquired in a business other parties that it will
combination shall be allocated to accept certain
each of the acquirer’s CGU in the responsibilities; and
year of business combination. b. As a result, the entity has
created a valid expectation
IMPAIRMENT LOSS FOR A CGU on the part of those other
- The impairment loss on a CGU parties that it will discharge
shall be allocated those responsibilities.
1. First, to any goodwill
allocated to CGU Contingent Liability - is;
2. Then, to the other assets of a. A possible obligation that
the unit pro data on the arises from past events and
basis of the carrying whose existence will be
amount of each asset in the confirmed only by the
unit. occurrence or non-
occurrence of one or more
PAS 37 - PROVISIONS, uncertain future events not
CONTINGENT LIABILIITIES AND wholly within the control of
CONTINGENT ASSETS the entity; or
b. A present obligation that
Provision is a liability of uncertain arises from past events but
timing or amount. is not recognized because;
i. It is not probable that an
Liability a present obligation of the outflow of resources
entity arising from past events, the embodying economic
settlement of which is expected to benefits will be required
result in an outflow from the entity of to settle the obligation;
resources embodying economic or
benefits. ii. The amount of the
obligation cannot be
Obligating event is an event that measured with sufficient
creates a legal or constructive reliability.
obligation that results in an entity
having no realistic alternative to Contingent asset - a possible asset
settling that obligation. that arises from past events and
existence will be confirmed only by
the occurrence or non-occurrence of
 CFAS REVIEWER
one or more uncertain future events Provisions shall be recognized
not wholly within the control of the when all are present:
entity  An entity has a present
obligation (legal or
Onerous contract is a contract in constructive) as a result of a
which the unavoidable costs of past event;
meeting the obligations under the  It is probable that an
contract exceed the economic outflow of resources
benefits expected to be received embodying economic
under it. benefits will be required to
settle the obligation; and
Restructuring - a program that is  A reliable estimate can be
planned and controlled by made of the amount of the
management, and materially obligation
changes either:
1. The scope of a business Contingent liabilities
undertaken by an entity; or  Not recognized, only
2. The manner in which that disclosed
business is conducted.  Except, of outflow of
economic benefit is remote,
CLASSES OF LIABILITIES do nothing

Trade payables are liabilities to pay Contingent assets

for goods or services that received  Not disclosed
or supplied and have been invoiced  Except, if probable inflow of
or formally agreed with the supplier/ economic benefit then
disclosed
Accruals are liabilities to pay for
goods or services that have been MEASUREMENT OF PROVISION
received or supplied but not have  The amount recognized as a
been paid, invoiced or formally provision shall be the best
agreed with the supplier. estimate.
 Determined by the judgement
Provisions liabilities with uncertain of the management of the entity
timing or amount  Uncertainties on the best
 They are present obligations; estimate
and  Involves large population of
 Probable outflow of items = expected value
economic benefits method
 Continuous range of
Contingent liabilities are not possible outcomes = mid-
recognized as liabilities because point of the range
they are either  Single obligation is being
 Possible obligations measured = Most Likely
 Present obligations that do Outcome
not meet the recognition  Measured before tax
criteria in this standard  Use present value when the
effect of the time value of money
RECOGNITION is material
 CFAS REVIEWER
 Future events shall be reflected - The estimated premium expense
in the amount of a provision for the year = estimated # of
where the is sufficient objective premiums to be given x net cost
evidence that they will occur. - Net cost = unit cost of premium +
 Expected disposal of assets, Distribution cost per premium - cash
gains from the expected disposal remittance from customer
assets shall not be taken into - Actual # of premiums given x net
account in measuring a cost
provision.
 Reimbursements Lawsuits
 Reimbursement shall be Best estimate out of:
recognized when, and only - the most likely amount to be paid
when, it is virtually certain as provided by the lawyers of the
that reimbursement will be entity.
received if the entity settles - the weighted average amount,
the obligation. when there are multiple possible
 The reimbursement shall be amounts and each amount has a
treated as a separate asset. unique chance of occurrence.
Shall not exceed the amount - the midpoint amount, when there
of the provision. are multiple possible amounts and
 Changes in and use of each amount has an equal chance of
provisions, provisions shall be occurrence.
reviewed at the end of each
reporting period and adjusted CHANGES IN PROVISIONS
to reflect the current best - Provisions shall be reviewed at the
estimate end of each reporting period and
adjusted to reflect the current best
ACCOUNTING FOR PROVISIONS estimate.
Warranties - If it is no longer probable that an
outflow of resources embodying
Beg. Bal. Of provision xx economic benefits will be acquired to
Estimated warranty expense for the settle the obligation, the provision
year xx shall be reversed.
Actual expenditures for warranties
PRODUCT WARRANTIES AND
(xx) GUARANTEES
Ending balance xx - If a customer has the option to
purchase a warranty separately
- The estimated warranty expense (for example, because the warranty
for the year is usually a % of sales is priced or negotiated separately),
the warranty is accounted for in
Premiums accordance with PFRS 15
Provisions, Contingent liabilities and
Beg. Bal. Of provision xx contingent assets unless the
Estimated premium expense for the promised warranty provides the
year xx customer with a service in addition to
Actual net costs in distribution of the assurance that the product
premiums complies with agreed-upon
(xx) specifications.
Ending balance xx
 CFAS REVIEWER
LIABILITY FOR PREMIUMS - prescribe the accounting treatment
- A customer option to acquire for intangible assets that are not
additional goods or services for free dealt with specifically in another
or at a discount is accounted for standard (IAS 32, IFRS 6)
under PFRS 15 if the option provides
the customer a material right that RECOGNITION CRITERIA (PAS 1)
the customer would not receive - It is probable that the expected
without entering into that contract. future economic benefits that are
- A customer option that does not attributable to the asset will flow to
provide the customer with a material the entity.
right is not accounted for under - the cost of the asset can be
PFRS 15; and therefore, accounted measured reliably.
for in accordance with PAS 37.
EXAMPLES OF INTANGIBLE
GUARANTEE FOR ASSETS
INDEBTEDNESS OF OTHERS To be recognized under PAS 38
- A provision for the guarantee for a. Patents
indebtedness of others is recognized b. Copyright
when it becomes probable that the c. Franchise
entity will be held liable for the d. Trademarks/brand-names
guarantee, such as when the original e. Franchise(books of
debtor defaults on the loan. franchise)
f. Leaseholds or lease rights
PAS 38 - INTANGIBLE ASSETS g. Computer software
h. Web site cost
Intangible asset - unable to be i. Service rights (fishing rights,
touched or grasped; no physical airline rights, broadcasting
presence. license)
- resource controlled by the Cannot be recognized
company; result of past event; future j. Goodwill
economic benefit. k. Brands
l. Mastheads and publishing
DEFINITION ACCORDING TO PAS titles
38 m. Customers’ list
- Intangible assets are identifiable,
non-monetary assets without any INITIAL MEASUREMENT
physical substance. - An intangible asset shall be
measured initially at cost. An
Identifiable intangible asset may be recognized
 Separable; or through any of the following:
 Arises from contractual or 1. Separate acquisition
other legal rights  The cost of a separately
Non-monetary assets acquired intangible asset is
 No predetermined fix amount fundamentally similar with
 Value changes over time getting the initial cost of any
 Tougher to liquidate acquired asset, such as an
Without physical substance item of PPE. The initial cost
 Abstract comprises:
A. Its purchase price,
OBJECTIVE OF PAS 38 including import duties
 CFAS REVIEWER
and non-refundable intangible assets such as
purchase taxes, after airport landing rights,
deducting trade licenses to operate radio or
discounts and rebates. If television stations, import
payment is deferred, the licenses or quotas or rights
cost of the asset is equal to access other restricted
to the cash price resources.
equivalent.  In accordance of IAS 20, an
B. Any directly entity may choose to
attributable cost of recognize both the intangible
preparing the asset for asset and the grant initially
its intended use. at fair value.
 Costs of employee  If an entity chooses not to
benefits (as defined recognize the asset initially
in IAS 19) arising at fair value, the entity
directly from bringing recognizes the asset initially
the asset to its at a nominal amount (the
working condition; other treatment permitted by
 Professional fees IAS 20) plus any expenditure
arising directly from that is directly attributable to
bringing the asset to preparing the asset for its
its working condition; intended use.
and 4. Exchanges of assets
 Costs of testing  the accounting for exchange
whether the asset is of items of PPE shall
functioning properly. likewise apply to intangible
2. Acquisition as part of a assets. The cost of such an
business combination intangible asset is measured
 In accordance with IFRS 3, if using the following hierarchy:
an intangible asset is  Fair value of the asset
acquired in a business given up
combination, the cost of that  Fair value of the asset
intangible asset is its fair received
value at the acquisition  Carrying amount of the
date. asset given up
 In accordance with this  However, if the transaction
standard and IFRS 3, an lacks commercial
acquirer recognizes at the substance, then the cost of
acquisition date, separately the asset acquired is equal
from goodwill, an intangible to the carrying amount of
asset of the acquiree, the asset given up.
irrespective of whether the 5. Internally generated intangible
asset had been recognized assets
by the acquiree before the  To assess whether an
business combination. internally generated
3. Acquisition by way of intangible asset meets the
government grant criteria for recognition, an
 This may happen when a entity classifies the
government transfers or generation of the asset into:
allocates to an entity  A research phase; and
 CFAS REVIEWER
 A development phase
 Research phase - expense The following are not part of the
immediately when incurred. cost of an intangible asset:
(if the problem is silent,  Costs of introducing a new
assume it is from research product or service (including
phase) costs of advertising and
 Activities aimed at promotional activities);
obtaining new  Cost of conducting business
knowledge; in a new location or with a
 The research for, new class of customer
evaluation of final (including costs of staff
selection of, applicants training); and
of research findings or  Administration and other
other knowledge; general overhead costs
 The research for  Costs incurred while an
alternatives for asset capable of operating in
materials, devices, the manner intended by
products, processes, management has yet to be
systems or services; and brought into use; and
 The formulation, design,  Initial operating losses, such
evaluation and final as those incurred while
selection of possible demand for the asset’s
alternatives for new or output builds up.
improved materials,
devices, products, SUBSEQUENT MEASUREMENT
processes, systems or  Similar items of PPE
services.  Cost model
 Development phase - an  An intangible asset shall be
intangible asset arising from subsequently valued at its
development shall be cost less any accumulated
recognized if, and only if, an amortization and any
entity can demonstrate all of accumulated impairment
the following: losses
 Technical feasibility  Note that intangible assets
 Intention to complete with no active market are
 Ability to use or sell subsequently valued using
 Generate probable the cost model.
future economic benefits  Revaluation model
 Availability of adequate  After initial recognition, an
technical, financial and intangible asset shall be
other resources carried at revalued amount,
 Ability to measure being its fair value at the
reliably the expenditure date of the revaluation less
Note: if the problem is silent on any subsequent
whether a certain expenditure in the accumulated amortization
development phase meet all the and any subsequent
criteria mentioned above, the said accumulated impairment
expenditure shall be assumed to not losses.
have met the criteria for
capitalization. AMORTIZATION OF INTANGIBLES
 CFAS REVIEWER
 Same concept with that of asset’s future economic benefits are
depreciating items of PPE/ expected to be consumed by the
 The entity shall assess whether entity. If that pattern cannot be
the useful life of an intangible determined reliably, the straight-
assets is finite or indefinite line method shall be used.
 Indefinite if there is no
foreseeable limit to the IMPAIRMENT OF INTANGIBLES
period over which the asset  There is impairment when the
is expected to generate net carrying amount of the asset
cash inflows for the entity. exceeds its recoverable amount
 Finite - the useful life of an (I.e. the higher between the fair
intangible asset that arises value less cost to sell the asset’s
from contractual or other value in use)
legal rights shall not exceed  The recoverable amount of an
the period of the contractual intangible asset with an
or other legal rights, but may indefinite useful life is usually
be shorter depending on the equal to its value in use, since
period over which the entity such assets have no known
expects to use the asset. market. Because the term is
 Renewable legal wife indefinite, the value in use is
 If the contractual or other computed using the formula in
legal rights are conveyed for computing a perpetuity:
a limited term that can be  Value in use = expected annual
renewed, the useful life of cash flows / discount rate
the intangible asset shall
include the renewal RETIREMENTS AND DISPOSALS
period(s) only if there is  An intangible asset shall be
evidence to support derecognized:
renewal by the entity  On disposal; or
without significant cost  When no future economic
benefits are expected from
Amortizing intangible assets with its use or disposal.
finite lives The gain or loss arising from the
 The depreciable amount of derecognition of an intangible asset
intangible asset with a finite shall be determined as the difference
useful life shall be allocated on a between the net disposal proceeds,
systematic basis over its useful if any, and the carrying amount of
life or legal life, whichever is the asset
shorter It shall be recognized in profit or loss
 Begins when the asset is when the asset is derecognized
available for use. (unless IAS 17 requires otherwise on
 Shall cease when the asset is a sale and leaseback). Gains shall
classified as held for sale (or not be classified as revenue.
included in the disposal group
held for sale) and the date that PAS 40 - INVESTMENT
the asset is derecognized PROPERTY
(whichever is earlier)
Investment property is “property
Note: The amortization method used (land or a building - or a part of a
shall reflect the pattern which the building - or both) held (by the
 CFAS REVIEWER
owner or by the lessee under e. Property that is being
finance lease) to earn rentals for constructed or developed for
capital appreciation or both, rather future use as investment
than for: property.
a. Use in the production or
supply of goods or services EXAMPLES OF ITEMS THAT ARE
or for administrative NOT INVESTMENT PROPERTY
purposes: or a. Property intended for sale in
b. Sale in the ordinary course the ordinary course of
of business. business or property
acquired exclusively with a
INVESTMENT PROPERTY VS PPE view to subsequent disposal
Investment property in the near future or for
 Held to earn rentals or for capital development and resale.
appreciation or both b. Property being constructed
 Generates cash flows largely or developed on behalf of
independently of the other third parties (PFRS 15
assets held by an entity Revenue from contracts with
 Includes only land and building customers)
 Accounted for under PAS 40 c. Owner-occupied property
(PAS 16) and owner-
Owner-occupied property occupied property awaiting
 Held for use in the production or disposal.
supply of goods or services or d. Property that is leased to
for administrative purposes. another entity under a
 Generates cash flows in finance lease.
conjunction with the other assets
held by an entity. PROPERTY THAT IS PARTLY
 May include assets other than INVESTMENT PROPERTY AND
land and building PARTLY OWNER-OCCUPIED
 Accounted for under PAS 16  If the portions could be sold
separately (or leased out
EXAMPLES OF INVESTMENT separately under a finance
PROPERTY lease), an entity accounts for the
a. Land held for long-term portions separately. The portion
capital appreciation rather being rented out under operating
than for short-term sale in lease is classified as
the ordinary course of investment property and the
business. portion used as owner-occupied
b. Land held for a currently is classified as property, plant
undetermined future use. and equipment.
c. A building owned by the  If the portions could not be sold
entity (or held by the entity separately, the property is
under a finance lease) and investment property only if an
leased out under one or insignificant portion is held for
more operating leases. use in the production or supply
d. A building that is vacant but of goods or services or for
is held to be leased out administrative purposes. If the
under one or more operating owner-occupied portion is
leases.
 CFAS REVIEWER
significant, the entire property is uses the cost model or fair value
classified as PPE. model. Fair values determined
are used for measurement and
ANCILLARY SERVICES TO disclosure purposes if the entity
OCCUPANTS uses fair value model and for
- When ancillary services are disclosure purposes only if the
provided to the occupants of a entity uses cost model.
property held, the property is
classified as investment property if FAIR VALUE MODEL
the services are insignificant to the  After initial recognition, an entity
arrangement as a whole. that chooses the fair value
model shall measure all of its
MEASUREMENT investment property at fair
 Initial: cost value, except in cases where
 Subsequent: either the cost the exemptions under PAS 40
model or fair value model applies.
 Changes in fair values are
The following are excluded from the recognized in profit or loss.
cost of investment property and are  Depreciable assets are classified
expensed immediately. as investment property
a. Start-up costs (unless they measured under fair value
are necessary to bring the model are not depreciated.
property to the condition  If the fair value of an item of
necessary for it to be investment property cannot be
capable of operating in the determined reliably on initial
manner intended by recognition, such item is
management) subsequently measured under
b. Operating losses incurred the cost model.
before the investment
property achieves the COST MODEL
planned level of occupancy.  After initial recognition, an entity
c. Abnormal amounts of that chooses the cost model
wasted material, labor or shall measure all of its
other resources incurred in investment property at cost less
constructing or developing any accumulated depreciation
the property. and impairment losses in
accordance with PAS 16 PPE.
CHANGE IN ACCOUNTING
POLICY TRANSFERS
 A change from the cost model  Transfers to, or from, investment
to the fair value is accounted for property shall be made when,
prospectively. and only when, there is a
 A change from the fair value change in use, evidenced by:
model to the cost model is not a. Commencement of owner-
permitted. occupation, for a transfer
from investment property to
DETERMINING FAIR VALUE owner-occupied property;
 PAS 40 requires all entities to b. Commencement of
determine the fair value of development with a view of
investment property whether it sale, for a transfer from
 CFAS REVIEWER
investment property to 2. Unprocessed harvested
inventories; product
c. End of owner-occupation, for 3. Processed harvested
a transfer from owner- products
occupied property to
investment property; TYPE OF ASSET
d. Commencement of an 1. Biological asset (PAS 41).
operating lease to another However, bearer plants are
party, for a transfer from classified as PPE (PAS 16).
inventories to investment 2. Agricultural produce (PAS
property. 41)
3. Inventory (PAS 2)
PAS 41 - AGRICULTURE
BIOLOGICAL ASSETS AND
SCOPE AGRICULTURAL PRODUCE
PAS 41 is applied to account for the  Biological asset is a living
following when they relate to animal or plant
agricultural activity:  Agricultural produce is the
a. Biological assets, except for harvested produce of the
bearer plants. entity’s biological assets
b. Agricultural produce at the point
of harvest; and BIOLOGICAL ASSETS
c. Unconditional government 1. Sheep
grants related to a biological 2. Trees in a timber plantation
asset measured at its fair value 3. Dairy cattle
less cost to sell. 4. Pigs
5. Cotton plants
PAS 41 does not apply to the 6. Sugarcane
following: 7. Tobacco plants
a. Land (PAS 16 PPE and PAS 40 8. Tea bushes
Investment Property) 9. Grape vines
b. Bearer plants related to 10. Fruit trees
agricultural activity (PAS 16). 11. Oil palms
However, PAS 41 applies to the 12. Rubber trees
produce on those bearer plants.
c. Government grants related to AGRICULTURAL PRODUCE
bearer plants (PAS 20 Acctng. 1. Wool
For gov’t grants and disclosure 2. Felled trees
of gov’t assistance). 3. Milk
d. Intangible assets (PAS 38 4. Carcass
Intangible Assets). 5. Harvested cotton
 PAS 41 is applied to agricultural 6. Harvested cane
produce at the point of harvest. 7. Picked leaves
After the point of harvest, PAS 8. Picked leaves
2Inventories or other standard is 9. Picked grapes
applied. 10. Picked fruit
11. Picked fruit
NATURE OF ASSET 12. Harvested latex
1. Living animal or plant
 CFAS REVIEWER
PRODUCTS THAT ARE THE biological transformation of
RESULT OF PROCESSING AFTER biological assets for sale, into
HARVEST agricultural produce, or into
1. Yarn, carpet additional biological assets.
2. Logs, lumber
3. Cheese COMMON FEATURES OF
4. Sausages, cured hams AGRICULTURAL ACTIVITY
5. Thread, clothing a. Capability to change - living
6. Sugar animals and plants are capable
7. Cured tobacco of biological transformation.
8. Tea b. Management of change -
9. Wine management facilitates
10. Processed fruit biological transformation by
11. Palm oil enhancing, or at least stabilizing,
12. Rubber product conditions necessary for the
process to take place.
CONSUMABLE VS BEARER  Harvesting from
BIOLOGICAL ASSETS unmanaged sources is not
Biological assets are either agricultural activity.
consumable of bearer. c. Measurement of change - the
a. Consumable - those that are to change is quality or quantity
be harvested as agricultural brought about by biological
produce or sold as biological transformation is measured and
assets. Ex. Timber. monitored as a routine
b. Bearer - those other than management function.
consumable biological assets.
Ex. Fruit tree RECOGNITION
A biological asset or agricultural
PAS 41 applies to both consumable produce is recognized when:
and bearer animals. However, PAS a. The entity controls the
41 only to consumable plants but asset as a result of past
not to bearer plants. events;
b. It is probable that future
INDICATIONS THAT IT IS A economic benefits
BEARER PLANTS associated with the asset will
 Used in the production or supply flow to the entity; and
of agricultural produce; c. The fair value or cost of the
 Expected to bear produce for asset can be measured
more than one period; and reliably.
 Remote likelihood of being sold
as agricultural produce, except MEASUREMENT
for incidental scrap sales.  A biological asset shall be
measured on initial recognition
AGRICULTURAL ACTIVITY and at the end of each reporting
 PAS 41 applies to biological period at its fair value less
assets, agricultural produce and costs to sell.
gov’t. grants only when they  Agricultural produce harvested
relate to agricultural activity. from an entity’s biological assets
 Agricultural activity is the shall be measured at its fair
management by an entity of the value less costs to sell at the
 CFAS REVIEWER
point of harvest. Such Disclosure of the following
measurement is the cost at the information is encouraged but not
date when applying PAS 2 required:
Inventories or another applicable 1) Disclosure of consumer bearer
standard. biological assets.
 A biological asset is measured at 2) Disclosure of mature and
cost less accumulated immature biological assets
depreciation and accumulated a. Mature biological assets are
impairment loss if the fair value those that have attained
of the biological asset cannot be harvestable specifications or
measured reliably on initial are able to sustain regular
recognition. harvests.
b. Immature biological assets
DEFINITIONS are those that have not yet
 Fair value is the price that would attained harvestable
be received to sell an asset or specifications or are not yet
paid to transfer a liability in an able to sustain regular
orderly transaction between harvests.
market participants at the 3) Disclosure of breakdown of total
measurement date. “gain (loss) from changes in
 Cost to sell are the incremental FVLCS” during the period
costs directly attributable to the attributable to price change and
disposal of an asset, excluding physical change.
finance costs and income taxes
(e.g., commissions to brokers,
levies by regulatory agencies
and commodity exchanges, and
transfer taxes and duties)
 Cost to sell do not include
transport costs, advertising
costs, income taxes, and interest
expense.
 If location is a characteristic of
the biological asset, the price in
the principal ( or most
advantageous) market shall be
adjusted for the transport
costs.

GAINS AND LOSSES

 A gain or loss arising on initial
recognition if a biological asset
at fair value less costs to sell
and from a change in fair value
less costs to sell of a biological
asset shall be included in profit
or loss for the period in which It
arises.

ENCOURAGED DISCLOSURES